Belgium

A worker who has an employment contract is considered to be an employee. There are three essential elements making up an employment contract: work, remuneration and relationship of authority. The third element is the critical characteristic.

Independent contractors are referred to as “self-employed workers” in Belgium. A self-employed worker is any individual performing professional activities within the scope of which he/she does not work under the authority of an employer. Consequently, the criteria for distinguishing between a self-employed person and an employee are based on the existence or the absence of a link of subordination between the contracting parties: if one of these parties exercises an employer’s authority over the other, the employment relationship is deemed to be an employment contract.

Before 1 January 2007, the guidelines for distinguishing employees from independent contractors were based on the jurisprudence of the Court of Cassation (Belgian Supreme Court), which rendered several important decisions in this matter. The Belgian government nevertheless decided to regulate this matter at the end of 2006, with the so-called “Employment Relations Act of 2006”1, which was primarily a reflection of the jurisprudence of the Court of Cassation.

Since mid-2013, the parties to an employment contract, or the self-employed person who seek(s) legal certainty with respect to the working relationship, can request a social ruling from the Administrative Commission on Employment Relations (“Social Ruling Commission”) in order to reduce the risk of re-characterization and to avoid the related sanctions.

a. Factors that Determine Who is an Employee and Who is an Independent Contractor

The Employment Relations Act created a legal framework to ascertain the legal nature of the employment relationship. The key test remains whether or not there is a relationship of authority/subordination between the parties. The new element introduced by the Act is that the intention of the parties (and therefore the mutually agreed legal status) constitutes the essential factor to determine whether or not a subordinate relationship exists. This is in line with the established case law of the Court of Cassation. Under this Act, re-qualification of the relationship (from self-employed to employee) and the resulting obligation to register with a different social security status, will only be possible in cases where certain factual elements are found to be incompatible with the qualification chosen by the parties.

The Act defines the four general criteria to be used in determining whether such factual elements exist in a particular case:

the parties’ intention as expressed in the agreement: the qualification decided by the parties will be the starting point for the judge’s analysis of the nature of the contract; however, it is understood that the actual performance of the agreement must be in line with the nature of the employment relationship chosen by the parties.

the worker’s freedom to organize his/her own working time: impossibility of freely organizing working time; obligation to strictly follow working days (performing a given number of hours, reporting any absence); execution of specific orders regarding specific tasks – all of these are elements that point to subordination.

the worker’s freedom to organize his/her work: in the framework of self-employment, parties enjoy a wider degree of freedom regarding the organization and the practical execution of the work, even if it is accepted that general guidelines may be given to accommodate the requirements of the job itself (e.g. the opening and closing hours of a shop which, although placing an obligation on an independent contractor, do not necessarily indicate subordination). The absence of any obligation to justify the time schedule, freedom to work the number of hours of choice, complete freedom to choose the dates of annual vacations – all of these elements, in principle, indicate self-employment.

the ability to exercise hierarchical control.

The Act also provides neutral criteria that are not relevant for determining the nature of the employment relationship. These criteria relate to a number of legal elements, which are mere formalities and concern the manner in which the contracting parties organize their relations with the social and tax administration. They contain no information regarding the way in which the parties perform the employment relationship. These criteria include the title of the contract, registration with a social security office, and registration with the Cross point bank for Enterprises, registration with the VAT adminis-tration, and the way in which the revenue is reported to the tax authorities.

Besides the general criteria, the Act also determined a list of specific socio-economic criteria, which apply in addition to the criteria listed above. They may not deviate from either the general or the neutral criteria laid down in the law. The Act sets out a number of examples: the possibility of hiring or replacing employees, working in places or with materials which are personal property, guaranteed pay, personal and substantial invest-ment in the enterprise with personal capital, power of decision over financial resources. The Act also provides a procedure for establishing these or other specific criteria in a determined sector or profession, or categories of professions by Royal Decree.

By means of an Act, in 2012, the Government reinforced its effort to counter bogus self-employment in some fraud-sensitive sectors, by introducing a refutable presump-tion (which can be reversed by all means of law) of the existence of an employment agreement, if, based on the contractual relationship, more than half of the following criteria are fulfilled:

i. Absence of any financial or economic risk for the worker, such as absence of a personal and substantial investment with his/her own resources in the undertaking, or absence of a personal and substantial part in the profits or losses of the undertaking;

ii. absence of liability and decision-making power in respect of the financial resources of the undertaking;

iii. absence of power of decision in respect of the purchase policy of the undertaking;

iv. absence of power of decision in respect of the price policy, unless prices are fixed by law;

v. absence of commitment in respect of the result of the agreed work;

vi. guaranteed payment of a fixed compensation without regard to the result of the un-dertaking or the volume of the work performed;

vii. not being an employer of personally and freely hired staff, or absence of possibility to hire personnel to carry out the agreed work or to be replaced;

viii. not acting as an undertaking towards other individuals or working usually or mainly for the same contractual partner;

ix. working in spaces of which one is not the owner or tenant, or working with materials provided, financed or secured by the contractual partner.

These criteria can be modified for per (sub)sector by Royal Decree.

Currently, the presumption only applies to:

the construction industry;

security and monitoring/surveillance activities on behalf of third parties;

transport of goods and/or passenger transport on behalf of third parties, with exception for ambulance services and transport for disabled persons;

activities falling within the scope of the Joint Committee for the cleaning sector.

b. General Differences in Tax Treatment

Income tax
For the contractor of the self-employed worker, payment of the agreed remuneration will be made directly to the worker, without any required tax withholdings (however, in most cases, the value added tax will be generated). This means that the independent contractor is personally responsible for the tax obligations. Within the framework of an employment contract, mandatory source deductions must be made by the employer.

The level of income taxation for employees and self-employed individuals is similar. The income tax rate is progressive (the more the worker earns, the higher the tax rate). How-ever, an independent contractor can benefit from some tax advantages, for example, in the field of the writing of business expenses or by working through his own management company.

Social security contributions
The employer is responsible for the registration, declaration and payment of both the employee and employer’s social security contributions. The employee does not have to pay his social contributions by himself. The employer retains, each month, 13.07 % of the gross salary as personal social security contributions and pays a maximum of 35 % of the gross salary as employer’s contributions. In total, the social security contributions represent around 48 % of the gross salary of an employee (this stands for white-collars only, employer’s contributions on blue-collars are higher).

The self-employed person must register himself to a social insurance fund by the time he begins his activities. He will pay his own social contributions of approximately 21 %, every three months, to his social insurance fund. Contrary to employees, the social security contributions of a self-employed person are capped (i.e. beyond a certain amount of income).

c. Differences in Benefit Entitlement

Employment benefits
Legally, independent contractors are not entitled to specific benefits. They normally only receive the remuneration agreed between the parties.

Apart from the base fixed salary, an employee will be entitled to benefits provided by law, such as, for example: Holiday leave and pay; End of year premium; Public holidays; overtime pay.

Social security benefits
The employer’s and employee’s social security contributions are used to pay:

allowances in the event of sickness;

unemployment benefits;

allowances in the event of incapacity for work through sickness or invalidity;

allowances in the event of accidents at work;

allowances in the event of industrial disease;

family allowances;

retirement and survival pensions.

The self-employed worker’s contributions are fixed at a lower percentage than the joint contribution of employers and employees, and provide fewer rights. The independent contractor’s benefit entitlement covers four social security branches:

family benefits, which includes childbirth or adoption allowance, monthly family benefits, and others benefits such as age-based supplementary payments and orphan allowance;

retirement and survival benefits;

sickness and incapacity insurance: covering some healthcare needs and incapacity for work (the self-employed person is required to register with the insurance fund of his choice);

social insurance in case of bankruptcy: this insurance will allow the self-employed person to maintain his rights regarding healthcare insurance and family benefits for four quarters, and allow him to obtain temporary compensation.

In addition, the self-employed person will also benefit from a maternity insurance. As a rule, a self-employed person is not entitled to receive unemployment benefits, contrary to employees. It should be noted that the legislation on social security for independent contractors also applies to their caregivers. The caregiver is a person who, in Belgium, assists or supplies an independent contractor during the exercise of his function, but who is not engaged to him with any type of contract. The spouse of the independent contractor, or the person having made a declaration of legal cohabitation (provided that they do not have a professional activity as employee or independent) will automatically be considered as a caregiver and therefore, benefit from all the rules. This presumption is rebuttable.

d. Differences in Protection from Termination

The general termination modes of contractual relationships are the same for employees and self-employed persons. This stands, for example, for termination by mutual agree-ment, force majeure or judicial resolution of the contract.

However, for employees, there are a set of legal rules restricting the possibility to unilat-erally terminate their employment contract. Apart from the dismissal for serious cause, there are two methods of termination of an employment contract concluded for an in-definite period of time: either by giving notice or by paying severance compensation in lieu of notice. The duration of the notice period is, in principle, fixed by law and depends mainly on the seniority of the employee concerned.

It is important to note, that some employees benefit from a specific protection against dismissal based on their individual situation (e.g. maternity, trade union activities, com-plaint against sexual or moral harassment, etc.). Depending on the case, the protection involves procedure or motivation requirements and is sanctioned by a specific termina-tion indemnity fixed by law.

As a rule, there is no requirement to ask a court for permission to dismiss, except in very exceptional circumstances (e.g. for employees involved in trade union activities and representing the personnel in the Works Council, the Committee for Prevention and Protection at Work and/or the Trade Union delegation). Even under these exceptional circumstances in which prior approval would be required, not asking for approval will never result in the nullity of the dismissal itself. The sanctions that are imposed are only of a pecuniary nature.

With regard to the termination, it is clear that there is a higher degree of flexibility when working with a self-employed person, in comparison with the protective and mandatory legal rules applicable to employees. As a rule, a self-employed person does not benefit from any legal protection from termination, unless otherwise agreed between contract-ing parties. In absence of such protection rules, parties will have to take case law into consideration when determining the termination rights (notice period, compensation).

e. Local Limitations on Use of Independent Contractors

There are no specific local limitations on the use of independent contractors. However, the independent contractor will be assumed to work as an employee within the framework of the Act of 3 July 1978 relating to employment contracts, which provides that “Benefits of additional services performed under a contract of services are presumed to be done under an employment contract, without that the evidence of the contrary can be made, and this when the service provider and the recipient of these are bound by an employment contract for the performance of similar activities” (free translation). In other words, a worker can, in principle, not work as an employee and as a self-employed person for the same company.

f. Other Ramifications of Classification

Employees who have been struck by the closing-down of their company can benefit from the intervention of the “Indemnity Fund for the Closing-down of Firms” (IFCF).

The IFCF is mainly financed by employer’s contributions and reimbursements by receivers and liquidators of the amounts that were advanced to the employees. In addition, the IFCF receives limited funding from the Belgian government.

In practice, the IFCF pays the amounts payable to the employees and recovers them afterwards from the receiver(s) and liquidators.

The IFCF intervenes in case of bankruptcy, take-over after bankruptcy, conventional transfer, liquidation and closing-down. Following certain legal criteria, it pays different kinds of indemnities to the employees: closing-down indemnities, contractual indemnities, transition indemnities, company bonuses and additional remunerations due to certain protected employees.

g. Leased or Seconded Employees

Under Belgian law, the lease out of employees is governed by the Act on temporary work. This Act prohibits, in principle, activity that consists of a natural or legal person leasing his employees to third parties who use these employees and exercise over them, any part whatsoever, the authority belonging to the employer. The violation of this prohibition can lead to civil, criminal and administrative sanctions.

This Act provides, however, for some exceptions. In certain cases, an exceptional leasing of employees is indeed permitted, subject to the respect of general conditions and the warning to, or prior authorisation of, the Labour Inspectorate. Those general conditions are:

Exceptional character: the leasing of employees must be of an exceptional character, which means that it must be both limited in time and not be repetitive.

Permanent employees: the leased employees must be permanent employees, i.e. persons who are already in the employ of the employer who leases them and who work regularly for him.

Level of remuneration: the remuneration and fringe benefits of the leased employees cannot be inferior to those from which employees carrying out the same functions within the user company benefit.

If the above-mentioned general conditions are fulfilled, it is possible to obtain authoriza-tion by the Labour Inspectorate. To this end, a specific procedure must be followed and a written document must be signed by the employer, the user and the worker, before the start of the leasing.

It is also possible to have recourse to the leasing of employees by means of simple prior information to the Labour Inspectorate in two hypotheses:

within the framework of collaboration between companies of the same economic or financial entity (groups, holding);

for the execution, on a temporary basis, of specialised tasks requiring a specific professional qualification.

In these hypotheses, the signature of a written document by all parties prior to the leasing is also required.

The legal leasing of employees not only implies that the contract between the employee and his/her employer continues to be legally valid and in force, but also that the user becomes jointly liable with the employer for the payment of social security contributions, remuneration, indemnities and benefits, which derive from the employment contract.

In case of illegal leasing, both the employer and the user are potentially exposed to civil, administrative and/or criminal sanctions.

The civil sanctions laid down by the Act on temporary work are the following:

the employment contract between the employee concerned and the employer (i.e. the entity which leases the employee) is void as of the moment the employee starts working for the “user”;

the user and this employee are bound, as of that moment, by an open-ended employment contract;

the employee can terminate this contract without notice, nor indemnity, until the date on which he/she would normally no longer be at the disposal of the “user”; and

the user and the employer (i.e. the entity which leases the employee) are jointly liable for the payment of social security contributions, remuneration and benefits deriving from this open-ended employment contract.

The administrative or criminal sanctions laid down by the Social criminal code, include a criminal fine of EUR 600 to EUR 6,000 or an administrative fine of EUR 300 to EUR 3,000. These amounts apply per employee, but are limited to a maximum of respectively EUR 600,000 or EUR 300,000 in total.

Besides, the Supreme Court ruled, in a judgment of 15 February 2016, that an employ-er who leases out his employees to a user in violation of the prohibition to lease out employees, in principle, imposed by the Act on temporary work, might be unable to rely on the contract, which formalizes such a leasing out, in order to claim the payment of his bill by the user.

An alternative to the leasing of employees could be to have recourse to a service agreement between the companies concerned.

In such a framework, a user company gives limited instructions to employees of a service provider working within the user company, based on a service agreement exe-cuted between the user company and the employer/service provider. The purpose of the said agreement is not the lease out of employees, but the execution of a determined work.

However, the following conditions must be simultaneously met:

the service agreement must be in writing and clearly, and in detail, list the exact types of instructions that can be given to the service provider’s employees by the user company (the types of instructions will depend on the work to be performed and on the functions concerned and must cover all aspects thereof, which could result in an extensive service agreement; e.g. attendance to meetings; preparation of documents on a determined topic; respect of deadlines; etc.);

these instructions may not undermine the legal employer’s authority over the employees;

the factual situation must correspond to the wording of the service agreement.

If any of these conditions are not met, there will be a prohibited lease of personnel.

h. Regulations of the Different Categories of Contracts

Belgian labour law is very protective and many aspects of the employer/employee rela-tionship are regulated by federal legislation and collective bargaining agreements. With regard to employments contracts as such, the main rules are stipulated in the Act of 3 July 1978 relating to employment contracts, which contains the major provisions in that matter. This Act regulates the conclusion, the execution and the termination of the contract, be it a contract for an indefinite or a definite period. It also regulates specific situations such as, for example, the salesman agreement, the domestic agreement and the homework agreement. Moreover, this Act contains provisions about the duration and the suspension of the contract, the obligation of both parties, the termination of the contract, the non-competition clause, etc. Another important legal source is the Act on Work, which mainly deals with working time issues. What is not specifically regulated by labour law is subject to general civil law.

Agreements concluded with self-employed persons are generally much less regulated. There is no specific global Act about the self-employment relationship. The general civil, commercial and corporate laws will apply. However, certain types of contracts concluded with a self-employed person are legally regulated (e.g. the Commercial agency agree-ment), but it is rather uncommon.

Such a re-characterization can only be established by a Court. Re-characterization of the relationship (from self-employed to employee) and the resulting obligation to register with a different tax and social security system, will only be possible in cases where certain factual elements are found to be incompatible with the qualification chosen by parties. Indeed, since 2003, and following several decisions of the Court of Cassation, the judge will have to first determine how the parties have qualified their relationship, so that the will of the parties and the qualification of the contract are the pre-emi-nent criteria, and this qualification can only be re-characterized if there are elements incompatible with the chosen qualification.

b. The Legal Consequences of a Re-Characterisation

Principle – in case of a re-characterization, there are several legal consequences; both for the self-employed person and the other party as regards to tax, social security, and labour relations.

Tax law – the Company (i.e. the employer) could be held liable for not having withheld personal income taxes. Tax increases and fines can be imposed. However, contrary to the social security contributions, the company will not become solely liable for the taxes. If the authorities demand the payment of the taxes from the company, the latter will have recourse against the employee for the amounts paid (provided the employee is still solvent).

The Tax Office could claim such amounts for a period of 3 years (or 5 years in case of fraud) preceding the re-characterization. The amounts due before this date are barred. It must be noted that the Office could claim a tax on secret commissions, equal to 103 % of the amounts that were not mentioned on the fiscal statement – which was naturally not delivered by the employer.

Social security – Basic approach – the corresponding social security scheme will be applied, taking into account the applicable prescription period. This means that, as a rule:

the Company could be held fully liable for the entire amount of social security contributions that should have been paid, i.e. 13,07 % employee contributions and approximately 35 % employer contributions of the fees paid, to be increased with interest (7%), penalties and an increase of 10 %. There is no possibility of recovering the amounts so paid from the employee concerned (any contractual stipulation to the contrary would be null and void).

moreover, criminal sanctions (fines) could also be imposed for not declaring the employment to the National Office for Social Security (NOSS).

The NOSS could claim such amounts for a period of 3 years (or 7 years in case of fraud).

Social security – Derogations – however, since January 1st 2013, the re-characterization has fewer consequences for the employer in the field of social security and this in two cases:

when the employee voluntarily registers with the NOSS (in a specific notice);

when the parties obtained a social ruling from the Administrative Commission on Employment Relations (see “t” below).

In these two cases (only), some reductions are possible with regard to the claimed amounts, the regularization in time and the calculation basis. Criminal sanctions are also excluded.

Labour law – the whole relationship will be qualified as an employment contract from the beginning. As a consequence, the worker will have the right to claim arrears of certain benefits, such as holiday pay, end of year premium, salary increases provided by law, salary for overtime work, etc. The worker could also claim a legal severance indemnity in case of termination.

c. Judicial Remedies Available to Persons Seeking ‘Employee’ Status

Most of the time, it is when the independent relationship comes to an end and the individual concerned starts legal proceedings, that a Labour Court will examine the qualification given by the parties to the contract as well as the concrete terms of the relationship. When there are sufficient elements that are not compatible with the chosen qualification of the contract, it will be re-characterized as an employment contract and the individual concerned will be granted several amounts specific to the execution and the termination of the employment contract (e.g. arrears of salary, termination indemnities).

d. Legal or Administrative Penalties or Damages for the Employers in the Event of Re-Characterisation

In addition to the tax, social security and labour law consequences as described above, the employer is, in case of re-characterization, exposed to financial sanctions provided by the Criminal Social Code, for example, due to the lack of:

It is recommended to draft a written agreement. This agreement should take into consideration the general criteria provided by the Act, as described above. In other words, it should be clearly stipulated, for example, that the worker is free to organize his/her work and his/her working time. The relationship should be structured in such a way as to include as many independent factors as possible, while avoiding elements specific to a subordinate relationship. The written agreement will play a significant role in establishing the nature of the relationship. In addition, it is recommended to include specific clauses such as termination provisions.

b. Day-to-Day Management of the Relationship

The management of the day-to-day relationship must be consistent with its contractu-al qualification. Therefore, exercising close control on the work performed and giving detailed instructions must be avoided. Only general directives should be transmit-ted from the principal to the individual. The principal should give the worker as much independence as possible.

For example, in a decision of 6 December 2010, the Court of Cassation ruled that monitoring the quality of work is allowed. However, such control cannot go beyond a standard control of the quality of the delivered work and must stay in line with the independent qualification of the relationship. This implies that only the result can be controlled.

In its decision of 10 October 2016, the Court of Cassation ruled that the ability of one party to discipline or sanction the other party, renders the independent nature of the cooperation between those parties impossible.

Several Belgian authors have already mentioned that some of the nine specific criteria introduced by the Act of August 25, 2012, could be difficult to apply in practice. For example, the criteria “Not acting as an undertaking towards other individuals or working, generally and habitually, for one contracting party” could be interpreted as an alternative criterion, but also as a cumulative criterion. In addition, several criteria refer to the notion of “undertaking”, but if the self-employed person works through an intermediary undertaking (i.e. his/her own management company), it is not clear whether the criteria refer to the self-employed person’s undertaking, or to the main undertaking (i.e. the principal).

Consequently, the National Labour Council (Nationale Arbeidsraad – Conseil Nation-al de Travail) has been asked by the federal government to evaluate both the general and sector-specific criteria, as these criteria are often found to be difficult to apply in some circumstances. For example, in certain cases the specific criteria may point in the direction of self-employment, whereas the general criteria may indicate the opposite. Also, the current set of criteria do not seem to be adapted to more contemporary forms of (self-)employment, such as services performed in the sharing economy. A report of the National Labour Council is expected in the beginning of 2017.

b. Recent Amendments to the Law

As previously mentioned in the Introduction, since mid-2013, the parties to an employ-ment contract, or the self-employed person who seek(s) legal certainty with respect to the working relationship, can request a social ruling from the Administrative Commission on Employment Relations (“Social Ruling Commission”) in order to reduce the risk of re-characterization and to avoid the related sanctions.

This ability can be used prior to beginning the relationship or during the first year. The ruling is valid for a period of three years. The final decision-making power to re-charac-terize an independent relationship into an employment agreement rests with the Labour Courts. However, the consequences of such re-characterization will be less severe, at least concerning social security matters, if the employer has obtained a social ruling.

Until 1 January 2016, the Social Ruling Commission rendered 48 decisions; a limited amount, which has decreased over time. Although useful in circumstances where there is a lot of legal uncertainty, the possibility to apply for a social ruling seems to have little success.

a. How the Use of One or More Independent Contractors Creates a Permanent Establishment in Country and the Ramifications

With regard to permanent establishment, Belgian regulations are generally consistent with those of the Organization for Economic Co-operation and Development (“OECD”) in its Model Tax Convention. The Belgian authorities issued a “Standard agreement for the avoidance of double taxation with respect to taxes on income and on capital and for the prevention of fiscal evasion”, based on the OECD Model. This matter is also regulated by the Belgian Income Tax Code 1992.

According to the said Code, “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on. Specifically, this includes: a place of management? a branch? an office? a factory? a workshop; a mine, an oil or gas well; a quarry or any other place of extraction of natural resources. A foreign company would be deemed to have a Belgian establishment if, for the same or related projects, it carries out services in Belgium through one or more individuals (that are present in Belgium) for, in total, more than 30 days during any 12-month period.

However, “permanent establishment” shall be deemed not to include:

the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise?

the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery, or of processing by another enterprise?

the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or collecting information for the enterprise?

the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character?

the maintenance of a fixed place of business solely for any combination of certain activities, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

An enterprise shall not be deemed to have a permanent establishment merely because it carries on business through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.

Under Belgian Double Tax Convention law, a dependent agent will only give rise to a permanent establishment if he has, and habitually exercises, authority to conclude contracts on behalf of its foreign principal. Independent agents acting in the ordinary course of their business do not give rise to a Belgian establishment.

b. How the Employment of One or More Individuals Creates a Permanent Establishment in Country and the Ramifications

The same principles under point a. above will apply. The employment of one or more individuals may create a permanent establishment where there is either a fixed place of business, or where business is conducted via a dependent agent. The ramifications include that the foreign company will have to pay taxes in Belgium on its business profits attributable to the permanent establishment.

Since the Act of December 27, 2006, a legal framework exists in Belgium to ascertain the legal nature of the employment relationship, and details specific criteria used to determine and subsequently qualify the contractual relationship: general criteria, neu-tral criteria (that are not relevant for determining the nature of the relationship), as well as criteria that particularly applies to certain sectors of industry.